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Office Pain Moves From Vacancies to Losses

Office Pain Moves From Vacancies to Losses

High rates and maturing debt are finally forcing office landlords and lenders to confront years of lost value.

Nina Dale
September 23, 2026

In partnership with

Good morning. The office market spent years kicking the can down the road. Now, with billions in debt coming due and rates staying high, the bill is finally coming due for investors.

🎙️ This Week on No Cap: Trinity's CEO Sean Hehir on why his firm refuses to play the cap-rate arbitrage game. (Thanks to our sponsor, Warespace)

CRE Trivia 🧠

What $8.5B Las Vegas development, opened in 2009, was the largest privately financed construction project in US history at the time?

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Market Snapshot

S&P 500

GSPC

7,764.64

Pct Chg:
-0.00077%

FTSE NAREIT

FNER

817.60

Pct Chg:
-0.14%

10Y Treasury

TNX

4.955%

Pct Chg:
-0.008%

CME Term SOFR

1-Month

3.90%

Pct Chg:
-0.00

*Data as of 09/22/2026 market close.

Reality Check

Office Pain Moves From Vacancies to Losses

The office downturn is entering its reckoning phase as high borrowing costs and maturing debt force owners and lenders to recognize years of lost value.

By the numbers: U.S. office CMBS delinquencies hit 12% in August, near a record. About $64B of office CMBS debt matures this year and next, with nearly $40B delinquent, in default, or on watchlists.

Chicago's $500M haircut: 601W Cos. bought Chicago's Aon Center for $712M in 2015. The tower is now appraised at just $195M, and its owner was recently denied a three-year loan extension.

Extend and pretend meets the end: Lenders spent years extending troubled loans while waiting for lower rates and an office rebound. With borrowing costs still elevated, owners increasingly must inject fresh capital or hand properties back to lenders.

A tale of two office markets: Manhattan and San Francisco are benefiting from finance, tech and AI demand, while weaker downtowns remain under pressure. Chicago's office vacancy sits at 27%, while downtown Denver has reached 39%.

Reset prices bring buyers back: Steep discounts are attracting fresh capital. 601W and a partner bought 175 West Jackson for $41M, nearly 90% below its pre-COVID price, while other investors are acquiring distressed properties and debt at similarly deep discounts. PGIM Real Estate recently made its first San Francisco office investment in years, a building Soultana Reigle, PGIM's head of US equity, said on No Cap that the firm bought "for about a quarter of the price that the same building was under contract for" in 2020.

The fallout spreads: Falling office values are shrinking property-tax bills and shifting the burden elsewhere. Meanwhile, CoStar expects 11.5M SF of Chicago-area office space to be demolished through 2031.

➥ THE TAKEAWAY

Price discovery is replacing patience: Maturing loans are finally forcing losses into the open, but sharply lower prices are also bringing buyers back. The next office cycle will be less about whether office “comes back” and more about which buildings are worth saving.

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✍️ Editor’s Picks

How does your CRE asset stack up? DSCR, NCF, occupancy, valuation: compare against market and vintage with independent, rating-agency-aligned analytics from Morningstar Credit Analytics. (sponsored)
CMBS concentrates: CMBS lending is concentrating in multifamily and office, with multifamily LTV reaching 62% as issuers tighten leverage across retail, industrial and self-storage.
Income buffer: Stronger leasing, rent growth and NOI could help CRE owners offset borrowing costs above 6.5%, though highly leveraged assets face greater refinancing pressure.
Boring wins: AI’s most practical use in CRE brokerage today is automating tedious deal tracking, data entry, and follow-ups so brokers can focus on closing deals. (sponsored)
Rooftop returns: High Street brought 2 MW of community solar online at its Bridgewater industrial property, powering 230 homes while generating new rooftop revenue.

🏘️ MULTIFAMILY

Multifamily cools: Multifamily permitting fell 3.1% to 467,000 units in August, while starts dropped 22.5% as development recovery lost momentum amid challenging conditions.
Rent trend: U.S. median rent reached $1,390 in August, nearly matching its $1,395 pre-pandemic trend after post-2020 rent spikes and declines offset each other.
Student housing: Securitized student housing faces its biggest refinance test in 2029-2030, when $1.61B of private-label CMBS debt below an 8% debt yield reaches maturity.
Apartment distress: CRE CLO distress hit 28% in August as troubled 2021 apartment loans near maturity, with distressed multifamily sales rising to 4.7% of Q2 deals.

🏭 Industrial

Data centers: U.S. data-center growth faces power, permitting and community hurdles, with 52% of projects in counties tied to prior opposition or new regulations.
Microbay expansion: WareSpace paid $16M for a South San Francisco industrial building, planning 86 microbay flex suites as small-space supply remains scarce.
Leaseback slump: Sale-leaseback volume fell 67.6% to $1.3B in H1 2026, as investors favored traditional net lease deals amid selective pricing, credit standards and return expectations.
BREIT refinancing: BREIT secured a $1.71B CMBS loan to refinance 76 industrial properties totaling 19M SF, repay $1.48B in existing debt and distribute $105M to Blackstone, with the portfolio 96% leased across 18 states.

🏬 RETAIL

Invesco acquisition: Invesco REIT acquired the fully leased 323,113-SF Knightdale Marketplace in Raleigh for $87.2M, as quarterly fundraising accelerated to $79.2M through August.
Wynwood retail: Related Group and Tricap sold a 15,000-SF retail condo at Miami’s NoMad Residences for $33M, with Casa Tua leasing the ground-floor space.
Retail resilience: Canadian retail remains healthy, with stable vacancy and strong leasing demand led by essential services, health and wellness, QSRs, athleisure and suburban grocery centers.
Value retail: Higher-income consumers are increasingly trading down amid inflation, broadening demand for value-focused retailers and supporting neighborhood and small-format shopping centers.

🏢 OFFICE

Efficiency premium: Efficient buildings cost 43%–75% less to operate, making energy performance increasingly critical as electricity prices rise, regulations tighten and owners seek lower operating costs.
Merger safeguards: Paramount Skydance and Warner Bros. Discovery can proceed with their merger, but must preserve existing studio commitments and cannot sell their Los Angeles studio lots for five years.
Rivani refinance: Robert Rivani secured a $114.3M refinance for the 119K SF Miami Beach office property at 1691 Michigan Ave., now 83% leased after a major renovation.
Coworking expansion: Priddy Spaces plans to grow its Sun Belt coworking portfolio from 12 locations toward 50, targeting affluent, high-growth suburbs where flexible office demand is rising.

🏨 HOSPITALITY

Luxury financing: The Stockman in Steamboat Springs secured $482.5M in construction financing for a 59-room Auberge hotel and 95 luxury residences, with more than 25% of units already sold ahead of its 2030 opening.
Resort acquisition: Fort Partners acquired the 134-room Tideline Palm Beach Ocean Resort and Spa for $150M, adding to its South Florida luxury hospitality portfolio after a $20M renovation.
Belmont reopening: Belmont Park reopened after a $555M reconstruction, adding a new grandstand and four racetracks while preparing to host year-round racing and major events.

📈 CHART OF THE DAY

AI adoption is boosting bank profitability while reducing small business lending, as lenders increasingly favor hard data over relationship-based underwriting.

CRE Trivia (Answer)🧠

CityCenter. Co-developed by MGM Mirage and Dubai World, the 67-acre mixed-use complex added 2,800 hotel rooms, 2,400 condominiums, and a half-million square feet of retail.

Office Pain Moves From Vacancies to Losses

High rates and maturing debt are finally forcing office landlords and lenders to confront years of lost value.

CRE Trivia 🧠